Japan warned on Monday it was sliding deeper into recession after exports and business sentiment tumbled, while Ireland became the latest nation to pump cash into banks crippled by the worst financial crisis in 80 years.
The world's second biggest economy, which slashed interest rates to a rock-bottom 0.1 percent last week and announced $54 billion in extra government spending over the weekend, reported the biggest ever drop in exports in November.
National industrial champion and the world's top car maker, Toyota Motor Co, issued a second profit warning in two months, predicting a group operating loss of 150 billion yen ($1.7 billion) for the year to end-March — battered by a relentless global slide in car sales and a crippling rise in the yen.
Adding to the gloom, a Reuters Tankan monthly survey showed business sentiment at the lowest in its 10-year history and Bank of Japan Governor Masaaki Shirakawa said the worst was yet to come.
"The Japanese economy is deteriorating and for the time being its conditions are likely to become more severe," he told business leaders.
The government's monthly economic report summed it up in a similar vein. "Economic conditions are worsening," it said, the first time it used such an expression since February 2002.
Japan's November exports plunged 26.7 percent from a year earlier, hit by a strong yen and sagging demand for its electronics, cars and other goods in key U.S. and Asian markets, including China.
China, the world's fourth-largest economy and the only major one that is still growing, has its share of economic blues with expansion rapidly slowing from turbocharged double-digit rates of the past few years.
In the latest sign of changing fortunes, a source said China's mammoth $1.9 trillion reserve stockpile shrank in October, which some economists say may mark a potentially worrying reversal to capital outflows.
The gloom depressed stocks in most of Asia, but the Tokyo market bucked the trend, encouraged by the government's spending plans and news that struggling U.S. carmakers secured $17.4 billion in emergency government loans over the weekend.
MARKET HOPES
"The market is growing hopeful about the situation as a whole as the government looks willing to do everything it can to stabilise the financial system," said Soichiro Monji, a chief strategist at Daiwa SB Investments.
"The U.S. autos bailout is also positive as it's better to help the automakers than let them fail."
Tokyo shares rose 1.6 percent to close at the highest level in a month, while an MSCI index of stocks elsewhere in Asia and Pacific slipped about 1.7 percent.
Toyota lagged, ending down 0.2 percent.
Oil prices crawled back from last week's more than four-year lows below $34 per barrel, to near $43, but that had more to do with the dollar weakness than any sense of optimism about demand.
The global turmoil has already pushed much of the world's economy into recession, prompting policymakers to dish out trillions of dollars in bailouts and fiscal stimulus packages and drive borrowing costs aggressively ever closer to zero.
Taking a cue from Washington, Canada pledged $3.3 billion for its carmakers over the weekend.
And Ireland, once dubbed the Celtic Tiger for its booming economy, was the latest to pitch in with 5.5 billion euros ($7.7 billion) earmarked for stakes in Anglo Irish Bank, Bank of Ireland and Allied Irish Banks.
With government aid coming with tough conditions, banks kept trying to tap private investors to replenish capital eroded by losses from toxic U.S. housing debt.
On Monday, Singapore's DBS Group said it planned to raise about $2.7 billion through a rights offering, and Japan's Mizuho Financial Group announced a plan to raise $4 billion by issuing preferred securities.
But frantic global efforts may still fall short of what was needed to stave off the worst economic downturn since the 1930s, International Monetary Fund chief Dominique Strauss-Kahn warned.
"Our forecast, already very dark … will be even darker if not enough fiscal stimulus is implemented," he said in an interview with BBC radio on Sunday.
RACE TO ZERO
Japan is just a step away from zero rates and traders and analysts polled by Reuters believe early next year the central bank will return to a policy, which it abandoned only in 2006, of flooding banks with cash to inflate the economy.
The U.S. Federal Reserve already ventured into that territory last week, slashing its benchmark funds rate to a range from zero to 0.25 percent and promising to supply banks with unlimited cash and keep rates low over an extended period.
Markets expect the Bank of England, whose key rate is now 2.0 percent, to join the race to zero soon, but Tim Besley, a member of the bank's rate-setting committee, said rate cuts were not a cure-all.
"There is no quick or easy fix for where we are now. What we need is a measured approach, combining policies that deal with the challenges collectively," Besley said in the Daily Mail newspaper on Monday.
European Central Bank policymakers offered a similar word of caution, while keeping the door open to another rate cut in January after the ECB slashed its benchmark rate by the biggest ever margin to 2.5 percent early this month.
Asked whether the ECB would consider following the Fed's lead, board member Lorenzo Bini Smaghi told Italian daily Il Messagero:
"The United States' situation is very different from Europe's … We must not forget that the current crisis was caused by a period of interest rates taken to a very low level for too long."
